(Bloomberg) ? Gary Winnick, the founder and ex- chairman of Global Crossing Ltd., must defend against claims that he and 22 former executives fraudulently misrepresented the fibre- optic company?s finances, a US judge ruled.

A group of banks led by J.P. Morgan Chase & Co. sued Winnick in October for $1.7 billion, claiming he and the other ex- officials engaged in a ?massive scam? to conceal Global Crossing?s decline so it could borrow $2.25 billion two months before its collapse in bankruptcy in 2002.

US District Judge Gerard E. Lynch in New York yesterday denied the defendants? request to throw out the suit, saying it isn?t clear whether the banks should have uncovered the alleged fraud. The judge?s refusal to dismiss the fraud claims means Winnick and the others may have stand to trial before a jury.

The banks have ?adequately alleged? that ?falsehoods were perpetrated in order to preserve the company?s ability to draw on a line of credit that was increasingly necessary for its day-to- day survival,? Lynch wrote in a 34-page opinion.

The judge dismissed negligent misrepresentation claims against Winnick and the other defendants, saying the banks failed to show that the defendants had any special relationship with the banks that would create heightened legal responsibility.

Gary Naftalis, a lawyer representing Winnick, didn?t immediately return a call seeking comment. J.P. Morgan?s lawyer, Allan S. Brilliant of Milbank, Tweed, Hadley & McCoy, declined to comment.

Global Crossing leased space on its 27-nation network to rivals from which it rented capacity at the same time, helping both parties boost reported revenue. The transactions, once common among telecommunications companies, were the subject of probes by the Securities and Exchange Commission, the Justice Department and US lawmakers.

The judge said Winnick?s arguments that the banks should have known about inflated revenue from so-called capacity swaps with competitors ?are unconvincing, because disclosure of these transactions did not put the plaintiffs on notice of the underlying fraud.? Winnick, Global Crossing and some of the company?s former lawyers in March agreed to pay $325 million to settle lawsuits brought by investors and employees to resolve claims that Winnick and others inflated revenue by improperly accounting for phone- service swaps.

The accord included $245 million to settle securities-fraud claims and $80 million for pension claims. The settlement, which represents only a fraction of the $40 billion in stock value wiped out by Global Crossing?s January 2002 bankruptcy filing, was the 14th largest ever for a US securities class-action case, according to Bloomberg Data.

Founded by Winnick in 1997, Global Crossing amassed $12.4 billion of debt building a network for sending data at speeds faster than copper phone wires. The Hamilton, Bermuda-based company failed to win enough business as phone and Internet customers such as 360networks Inc. cut spending or folded, leaving the company mired in overcapacity and rising debt.

Winnick, a former Drexel Burnham Lambert executive whose Global Crossing shares were worth $4.5 billion at one time, became a billionaire faster than anyone, Forbes magazine said.

Congressional investigators in 2002 said evidence they released suggests Winnick and other company officials misled investors and improperly sold shares. Winnick sold more than $578 million in Global Crossing stock before the company?s bankruptcy. He later pledged $25 million to help compensate Global Crossing employees who lost money in retirement plans.